'Safeguard' tariff customers to be hit by £57 a year rise

Vulnerable customers on Ofgem's prepayment safeguard tariff will see energy bills rise by around £57 a year after the regulator reduces savings under the current price cap from April.

The safeguard tariff was introduced to protect vulnerable customers.

The rise comes amid expectations of an increase in the price in wholesale energy in the spring. However, Ofgem said almost 1 million additional vulnerable households will be put on the tariff, which puts a cap on the amount energy firms can charge.

The new price cap customers will initially make annualised average savings of around £115, because suppliers have to cut their prices to below the level of the safeguard tariff cap, but Ofgem said these savings would fall to around £66 a year from April when the level of the safeguard tariff rises due to higher energy costs.

Consumer groups warned that the safeguard tariff was not the cheapest on the market.

Alex Neill, Which? managing director of home products and services, said: "While it’s right that help is extended to vulnerable customers, an average saving of just £66 on people’s energy bills from April makes the safeguard tariff far from the cheapest deal on the market. Anyone overpaying on a poor value tariff should look to switch away to a better deal immediately, as they may save up to £305 a year.”

Richard Neudegg, head of regulation at uSwitch.com, said: “As the Government considers introducing more widespread energy price controls, the impending hike is a timely reminder that price caps can go up as well as down. A £57 average jump in annual costs is significant considering it was reviewed just six months ago. The number of deals available to escape rises has become more limited as prices cluster around the cap, and there’s a risk that vulnerable consumers will not have switched to a better deal believing the cap would protect them."

Victoria Arrington, a spokeswoman for energyhelpline, said: "Though the price cap hopes to still protect consumers from the most expensive of pre-payment rates, pre-payment customers tend to still pay much more that credit ones. However, there are cost-saving options out there, regardless of your meter type."

Ofgem introduced the safeguard tariff in April last year for over 4 million prepayment customers, who also find it difficult to get a better deal and are more likely to be vulnerable. The regulator adjusts the level of the cap twice a year based on a pre-defined methodology set by the Competition and Markets Authority to reflect the estimated underlying costs of supplying energy.

Dermot Nolan, chief executive of Ofgem, said: "Protecting vulnerable customers is a priority for Ofgem. That's why we have extended the prepayment safeguard tariff to almost 1 million vulnerable households, which will help deliver a fairer, smarter and more competitive market for all consumers.

"Even when energy costs rise, people on the worst deals are better off under the safeguard tariff as they can be sure that they are not overpaying for their energy and any rise is justified."